If you are the OEM, you depend on the entire supply chain to make the product the way you want it made. If you are a vendor in the supply chain, not only must you meet your OEM’s/customer’s demands, your own downstream suppliers must comply with your requirements. It’s an intricate relationship. If a supplier fails, or underachieves, it has a ripple effect throughout the entire supply chain and ultimately hurts the customer. It also is easier to keep a supplier than find a new one—which is why vetting vendors and carrying out thorough due diligence is one of the most important actions an OEM or supply chain partner can do to ensure manufacturing success.
Evaluating suppliers is becoming a more challenging process. An increasing number of products are becoming more complex to design and manufacture, which can challenge the capabilities of suppliers. Companies also want to be as productive and cost-efficient as possible and provide the highest possible quality for their customers. Moreover, the U.S. Food and Drug Administration (FDA) is focusing more on supplier management during quality system inspection technique audits.
Medical device manufacturers tend to group suppliers by the criticality of the service or product they provide—for example, an implant provider is considered more critical or higher risk than a supplier who provides a shipping carton. The depth of the supplier evaluation is therefore quite variable and depends on the service provided, risk factor, company size, available resources, and the sophistication of the organization’s supply chain.
Regulatory changes, such as ISO standards revisions, also are pushing companies to adopt a more risk-based approach to evaluating their suppliers.
“In the past, companies may have conducted an onsite audit of a supplier once per year, as it was industry best practice,” said Victoria Hughes, vice president of quality and regulatory for Millstone Medical Outsourcing, a Fall River, Mass.-based provider of post-manufacturing supply chain services, including packaging and distribution. “Today, however, the necessity and frequency must be decided based upon risk, such as criticality of the service being provided by your supplier, how many corrective actions you have issued to your supplier, ISO certifications, status of recent regulatory inspections, etc.”
Supplier Evaluation Methods
Never select a supplier based on price alone. There are plenty of metrics with which to evaluate a supplier, such as quality assurance, scheduling/on-time performance, innovation, pricing/savings, and capability and capacity assessments. Other factors to consider are the supplier’s regulatory history of audits, certifications and licenses as well as the contract partner’s consistently clear and prompt replies to requests for information or action. It also is worth noting the supplier’s reputation within the industry and conducting an evaluation of its client base, management team, and capacity for growth. For example, will the supplier be able to handle increased future business without a problem?
ISO 13485 and FDA registration are minimum requirements for a supply chain partner. More important is the contract manufacturer’s true understanding of FDA quality system requirements (QSR) from the OEM’s perspective.
“The best contract manufacturers understand the manufacturing aspects of a quality system and also provide additional services like design controls, product and process validation and supplier controls,” said Chip Harvill, vice president for Cadence Inc., a Staunton, Va.-based contract manufacturer to the medical device industry. “They also typically have people who are highly experienced in designing products themselves.”
“Trends we pursue outside of the normal grading criteria are things such as awareness of supplier capacity,” added Nils Hordon, director of global supply chain for Orchid Orthopedics LLC, a Holt, Mich.-based contract manufacturer for the medical device industry. “This allows us to tie the supply chain into our business sales and operations planning process, or measure a supplier’s willingness to support year-over-year supplier improvement programs. Tools we use for this are an array of audits, which cover our new supplier add process, capability assessments, capacity assessments, continuity plans, technical assessments, and QA [quality assurance] audits.”
The financial stability of the supplier—which can significantly influence the decisions made by its management regarding business operations, including their ability and willingness to take a long-term view of the partnership—also should be considered.
Cost is relatively easy to measure, but much harder to determine than total cost and risk factor. The actual value-add in most finished device assembly is minimal (less than 10 percent). “The real costs are in the design, materials, scrap, and quality system failures when they happen,” noted Harvill. “These can be somewhat subjective, but must be factored in and can easily trump even a large perceived unit cost savings.”
One of the most important factors is having relevant device and manufacturing process knowledge. In today’s world, many contract manufacturers claim they can make any type of product or perform any process. However, outcomes are much more satisfactory when a contract manufacturer actually has relevant domain knowledge. “Small experience gaps can be closed easily, but steps should be taken to avoid the position of having to educate the contract manufacturer on 90 percent of the required manufacturing processes,” said Harvill.
Greatbatch Medical, a Frisco, Texas-based developer and manufacturer of critical technologies for the medical device industry, has thorough supplier management procedures in place that clearly identify the requirements for approving a supplier. “Our supplier risk assessment is a comprehensive evaluation of predetermined metrics and qualifications, which are very detailed,” said Chad Ryshkus, marketing manager for Greatbatch Medical. “It is also completed by a team, and not individually, so personal bias is substantially reduced.”
Audits: How Deep Should You Go?
Onsite audits are an essential part of the overall validation process, as are ongoing reviews for key and critical suppliers. The goal is not necessarily to find fault, but to strengthen and improve the process on both sides so that production is maximized and surprises are kept to a minimum. ISO 13485 and QSR part 820 require medical device companies to audit their suppliers. The FDA can conduct either announced or unannounced audits; most OEM and supply chain audits are scheduled.
“Anything and everything is fair game to validate a potential new supplier’s claim of competence, from references to previous supplier score cards, Dun and Bradstreet ratings, and design reviews to validate a supplier’s claim of competence,” Hordon told Orthopedic Design & Technology.
Past experiences with vendors will indicate whether any additional assessments are required. Other factors to consider are ISO 13485 certification, company procedures and documentation, qualifications of personnel, production capacity, capability studies, financial stability, and any history of FDA warning letters or findings. Projected remaining life of equipment, project management records, as well as installation, operational and performance qualification documentation also may be relevant. Other capabilities to check are management of raw materials, quarantine areas, in-process material, and an effective material requirements planning system that tracks products accurately.
“On-site audits and ongoing evaluations are a key part of any supplier/partner relationship,” said Harvill. “We use a formal auditing schedule that includes on-site evaluations along with the typical on-going quality, cost, and delivery performance metrics.”
“There is no better way to understand your supplier than paying them a visit,” added Hughes. “Beyond the quality audit, you get an insight into the company culture and whether its vision and beliefs align with yours.”
Transparency is critical for maintaining an effective vendor partnership. For example, Millstone Medical is audited on-site once a year by every customer (more than 50 audits a year). Its yearly ISO assessment is based on historical performance and past audits. “We provide our customers with customer quarterly reviews, key performance indicators, and first pass yield data,” explained Hughes. “This allows them to view our performance, as well as the performance of their tier-2 suppliers, which can often be overlooked in the evaluation process.”
Summit Corporate Services, a Bozeman, Mont.-based provider of outsourcing and customizable business solutions to the medical device industry, is audited annually by its clients. These audits involve thorough evaluations of its quality management system, standard operating procedures, and transactions to confirm the 13-year-old company is operating in compliance with its policies and those of its clients. Summit’s quality management system includes a procedure for supplier/vendor qualifications, including a self-audit and a supplier/vendor agreement that are used to approve suppliers/vendors.
Because proper evaluation of suppliers/vendors is a key component during audits, there always should be a thorough method of evaluation. The extent of the detail of the evaluation depends on the type of product being supplied. “We request a proposed new supplier/vendor complete a self-audit,” said Damon Peary, president and CEO of Summit Corporate Services. “Once approved, we regularly review suppliers/vendors to ensure that quality, reliability, and dependability remain high, and that they are responsive and available when needed. Growing trends would include the use of more detailed metrics, which provide clearer insight into cost components and the ability to meet appropriate benchmarks.”
Due Diligence Pays Off
The “right” suppliers will understand how critical their services are to the success and growth of your business. Supplier/customer relationships that blossom into partnerships provide tremendous long-term synergy.
“Having a conversation with your suppliers, and allowing them a look behind the curtain as to what your pain points are, can create a dialogue that benefits and aligns both organizations toward a shared goal,” said Hughes. “A good supplier should be viewed as an extension of the customer.”
Finding the right supplier is essential for a successful partnership for a number of reasons, particularly with regard to maximizing limited resources and combining efforts for improved production, efficiency, and quality. “Clients who partner with Summit Corporate Services to manage their customer service, order processing, fulfillment, and logistical support are placing a great deal of trust in our ability to maintain the highest levels of quality and dependability, because we represent them when interacting directly with their customers, end users, and sales teams,” said Peary. “When contracting with third-party logistics firms like Summit, it’s critical to identify a partner who can consistently deliver accuracy, accountability, maintain a professional image to your customers, and provide dependable support for your sales teams.”
For Hordon, synergy has as much to do with attitude and goodwill from a supplier and customer as does “fit.” “There are always suppliers who are a great match from a capability standpoint, but are especially difficult to do business with, and as such, the relationship does not grow, or it becomes a liability,” said Hordon. “When you have a supplier who is a real performer, it’s important to not send all open problem issues to the supplier for execution—it is critical to the relationship that you remain diligent and only send work that matches their core capabilities.”
Harvill looks at customer/supplier relationships from the transactional and conversational points of view. “Transactional relationships are rarely remarkable,” he said. “The remarkable synergies get created in the conversational relationship. These relationships evolve into real partnerships over time as strategic goals are aligned and achieved with joint efforts by both parties.”
With OEMs consolidating their supply chains and trusted supply chain partners taking on more capabilities, it’s tough for a new supplier to get on the list. Meeting the OEM’s ever-increasing quality and regulatory expectations makes it even harder. (Editor’s note: For a detailed analysis on medtech supplier consolidation, please turn to Financial News on page 20).
Millstone Medical keeps an eye out for new suppliers, based on improvements to or changes in technology and/or products. The company constantly is looking to consolidate its list of suppliers as much as possible to make its system more efficient. “It is not impossible for new suppliers to work their way in,” said Hughes. “However, the cost of the supplier management quality system needs to be taken into consideration when adding a new supplier (e.g., maintenance of assessments/questionnaires, on-site audits, etc.) in addition to product and/or material cost savings.”
Ryshkus agreed. “We will consider new suppliers that have a core competency or capability that complements our own,” he went on to add. “If our risk assessment finds their systems require additional sophistication for manufacturing medical devices, select manufacturing partners can tap into our supplier development program for coaching.”
In recent years, the medical device industry has faced a significant increase in issues affecting product quality and patient safety. This is highlighted by the fact the U.S. Food and Drug Administration (FDA) reported a 97 percent increase in recalls from 2003 to 2012 (from 604 to 1190, respectively).
“Purchasing controls have been the target of several FDA enforcement actions between 2010 and 2012 and were cited as the fourth-most frequent cause of recalls,” said Joe Pinto, executive vice president and chief operating officer for the Performance Review Institute (PRI), a Warrendale, Pa.-based not-for-profit trade association that facilitates industry-managed programs and administers critical manufacturing process accreditation programs. “These factors, when considered in the context of growing supply chain globalization and enhanced interest in outsourcing, have increased the challenges of providing effective supplier oversight for original equipment manufacturers (OEMs) and contract manufacturers (CMs).”
PRI has been selected by the medical device industry to develop MedAccred, a critical process surveillance and accreditation program that will improve device product quality and, most importantly, enhance patient safety. The program will conduct in-depth critical process audits on behalf of the industry and, through supply chain accreditation, improve overall standards of supplier quality, thereby reducing the risk of costly and damaging recalls and associated liability costs.
MedAccred is an industry-managed program and has FDA support; participating companies such as DePuy Synthes, Stryker Corp., and Philips HealthTech work together to form critical process task groups comprised of technical experts in each of the critical manufacturing processes. Supplier representatives also participate in this process. “The task groups develop stringent audit criteria to ensure best practices using a consensus-based approach,” said Pinto. “Highly skilled and experienced auditors then go on site and assess a supplier’s capabilities against the rigorous audit criteria. Any non-conformances found are subject to a full and thorough corrective and preventive action-based closure process facilitated by PRI’s technical staff engineers.”
MedAccred is recognized as an important tool in verifying critical manufacturing process quality by ensuring flow-down of critical-to-quality specifications through the sub-tier supply chain. It will replace some of the routine critical process supplier audits conducted by many OEMs with one robust and technically superior audit, organization officials claim. “OEMs and CMs can be assured that their supply chain is being regularly and comprehensively audited, while suppliers will see an opportunity to improve their operations and product quality, while reducing the number of on-site customer audits, saving them both time and money,” concluded Pinto. — M.C.
Mark Crawford is a full-time freelance business and marketing/communications writer based in Madison, Wis. His clients range from startups to global manufacturing leaders. He also writes a variety of feature articles for regional and national publications and is the author of five books. Contact him at firstname.lastname@example.org